All clients entering into contracts for goods or services with the Commonwealth.
What do you need to do?This Publication aims to equip clients with an awareness of the Commonwealth's legislative and policy requirements in relation to access to documents and premises for the Commonwealth Auditor-General.
Partner
T +61 3 9643 4304
Cheng Lim
Partner
T +61 3 9643 4193
Sydney
Geoff Wood
Canberra
Adam Bartlett
Author
Sean Field
Defence contracts tend to contain clauses imposing access and disclosure requirements that can cause a level of anxiety for suppliers looking to protect their confidential information. This Defence client publication aims to equip clients with an awareness of the Commonwealth’s legislative and policy requirements in this area, so that they can negotiate access and disclosure clauses that address the Commonwealth’s legitimate needs without putting their confidential information at undue risk.
This publication focuses on access for the Commonwealth Auditor-General.
The Commonwealth Auditor-General
The Auditor-General Act 1997 (Cth)
The Auditor-General Act 1997 (Cth) (the Act) establishes:
- the office of Commonwealth Auditor-General, and
- the Australian National Audit Office (ANAO), being the Auditor-General’s bureaucracy.
The Act also sets out:
- the Auditor-General’s main functions and powers (Part 4 of the Act)
- the Auditor General’s information gathering powers (Part 5, Division 1), and
- restrictions on the Auditor-General’s ability to disclose or publish the information it gathers (Part 5, Division 2).
Functions and powers of the Auditor-General
Part 4 of the Act describes the Auditor-General’s main focus, which is on the financial statements and general performance of Commonwealth Government departments, agencies and what may be loosely termed “government business enterprises”.
Information gathering
The Auditor-General’s “information gathering” powers are quite extensive. Under section 32 of the Act, the Auditor-General is empowered to obtain information by directing a person to:
- provide the Auditor-General with any information that the Auditor-General requires
- attend and give evidence before the Auditor-General or an authorised official, or
- produce to the Auditor-General any documents in the custody or under the control of the person.
The Auditor-General may direct that the information or answers to questions be given orally or in writing, and that information or answers be verified or given on oath or affirmation that the evidence to be given will be true.
Access to premises
The Auditor-General also has a statutory right of access to Commonwealth premises. Under section 33(1) of the Act, the Auditor-General or an authorised official:
- may, at all reasonable times, enter and remain on any premises occupied by the Commonwealth, a Commonwealth authority or a Commonwealth company
- is entitled to full and free access at all reasonable times to any documents or other property, and
- may examine, make copies of, or take extracts from, any document.
Note that section 33(2) of the Act states that an official is not entitled to enter or remain on premises without producing a written authority signed by the Auditor-General stating that the official is authorised to exercise powers under Part 5, Division 1 (Information gathering powers) of the Act.
As can be seen from the above summary, the Act provides for access to Commonwealth premises only, and not to contractor premises. Hence ANAO has no right of access to contractor premises or documents, without an express contractual provision requiring the contractor to permit such access.
Scope of the Auditor-General’s powers
Section 31 of the Act states that the Auditor-General’s powers under sections 32 (Power of Auditor-General to obtain information) and 33 (Access to premises etc.), “may be used for the purpose of, or in connection with, any Auditor-General function”, with some exceptions in relation to:
- audits by arrangement (section 20 of the Act)
- the provision of advice or information relating to the Auditor-General’s responsibilities (section 23), and
- the provision of “extra” reports to Parliament and to Ministers (under sections 25 and 26 of the Act respectively).
“Auditor-General function” is defined in section 5 of the Act as “a function that the Auditor-General has under this Act or any other Act, and includes any function that the Auditor-General has when acting as auditor under the Corporations Act 2001”.
Confidentiality and non-disclosure
The Act applies criminal sanctions to the misuse of information obtained in the course of performing an Auditor-General function. Section 36(1) of the Act provides that a person must not disclose such information “except in the course of performing an Auditor-General function or for the purpose of any Act that gives functions to the Auditor-General”.
The Act (subsection 37(1)) also requires that the Auditor-General must not include particular information in a public report if the disclosure “would be contrary to the public interest” for any of the reasons specified in subsection 37(2), including if publication:
- would prejudice the security, defence or international relations of the Commonwealth, or
- would unfairly prejudice the commercial interests of any body or person.
By virtue of subsection 37(3), the Attorney-General cannot be required, and is not permitted, to disclose to Parliament or to Parliamentary Committees, information to which subsection 37(1) applies.
Legal obligations of Commonwealth Public Servants
Public Service Act
All Commonwealth public servants (including officers of the ANAO) are bound by the Public Service Act 1999 (Cth). They must comply with the APS - Values (section 10) and APS - Code of Conduct (section 13) under the Act.
The APS - Code of Conduct states, among other things, that:
- an Australian Public Service (APS) employee must behave honestly and with integrity in the course of APS employment, and
- an APS employee must not make improper use of:
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in order to gain, or seek to gain, a benefit or advantage for the employee or for any other person.
Breaches of the Code of Conduct
Sanctions that can apply to a breach of the Code of Conduct consist of the following (section 15):
- termination of employment
- reduction in classification (ie, demotion)
- re-assignment of duties
- reduction in salary
- deductions from salary, by way of fine, and
- a reprimand.
ANAO Guide to Conduct
The ANAO has published the Guide to conduct in the ANAO, which, among other things, contains guidance to ANAO staff on their handling of confidential information. The Guide reinforces the requirements of the Auditor-General Act and the Public Service Act discussed above, stating for example that:
“ … the Auditor-General Act requires that we do not divulge or communicate any information which has come to our knowledge except in the course of our official duties.
“With all information, the “need to know” principle is applicable and is based on the person’s or organisation’s need to access the information as part of their work responsibilities. Accordingly, we must not communicate official information obtained in the course of our duties other than for official purposes. Additionally, we must not take improper advantage, for any reason, of information gained in the course of our employment, This continues to apply should we leave the ANAO.”
Commonwealth Criminal Code
Public servants are also subject to the Criminal Code Act 1995 (Cth) which provides for a number of offences in relation to unauthorised disclosure and use of Commonwealth information.
Unauthorised disclosures of Commonwealth information could, for example, constitute a breach of:
- Chapter 5, Part 5.2, Division 91, which deals with information concerning the Commonwealth’s security or defence
- the “General dishonesty” regime in Chapter 7, Part 7.3, Division 135, or
- “Computer offences”, Chapter 10, Part 10.7.
Whether a disclosure would constitute an offence under the Criminal Code would depend on whether, in the circumstances, the necessary elements of the offence were established.
Obligations under the general law
Of course public servants are also subject to all of the legal obligations that apply to confidential information under the general law, and under other relevant legislation.
ANAO access clauses in Commonwealth contracts
Commonwealth “standard” clauses
Department of Finance and Deregulation clauses
The Commonwealth Department of Finance and Deregulation (Finance) publishes standard ANAO access clauses for inclusion in Commonwealth contracts.
They are non-mandatory, and procurement guidance allows each agency to decide whether it will include the clauses in an agreement. Guidance also:
- points out that “the clauses may need to be tailored to reflect their individual circumstances”, and
- reminds agencies to “consider the cost implications on business” of requiring the clauses.
Relevance to contract
The guidance states that the clauses are intended to give the ANAO access to records “directly relevant to the contract[’s] performance … [and do] not enable access to information that is outside the scope of the specific contract.”
Accordingly the Finance clauses state that disclosure obligations and audit access rights are to be limited to matters relevant to performance of the Contract.
The model clauses state that the “Customer” (ie, the Commonwealth) or its representative “may conduct audits relevant to the performance of the Contractor’s obligations under the Contract,” and that access to premises is limited to premises of the Contractor and “to the extent relevant to the performance of the Contract.”
Powers of the Auditor-General
In addition, the Finance model clauses limit a contractor’s obligations to comply with ANAO’s requirements to “requirements that are legally enforceable and within the power of the Auditor-General … or his or her … delegate.”
We would recommend clients check that any ANAO clauses being proposed by the Commonwealth include this limitation.
ASDEFCON clauses
A review of the relevant standard clauses in ASDEFCON (Strategic Materiel) shows that they are much broader in scope than the Finance model clauses.
Mainly this is because the Defence clauses do not deal solely with ANAO access, but as a result, clauses dealing with rights of third party access, for example, are much broader than they need to be to deal with ANAO’s requirements.
Accordingly we would advocate having a separate conversation about third party access, and endeavouring to steer Defence toward the Finance model ANAO access clauses.
Access to premises
Clause 10.7.1 of ASDEFCON (Strategic Materiel) requires the Contractor to permit the Commonwealth Representative (or any person authorised by the Commonwealth Representative) to have access to the Contractor’s premises, and access to “any of its records or accounts relevant to or impacting on performance of work under the Contract”. The clause would also permit the Commonwealth to copy any records or accounts for the purposes of the Contract.
Purposes of access
Clause 10.7.2 then goes on to list various purposes for which the Commonwealth Representative may require access, including:
- a) performing Audit and Surveillance activities in relation to Quality in accordance with clause 8 of the SOW
- b) investigating the reasonableness of proposed prices or costs in contract change proposals (see our further comments in relation to these below), and the reasonableness of any costs claims made by the Contractor, including claims for postponement and schedule recovery costs
- c) determining whether and to what extent steps should be taken to register or otherwise protect Commonwealth IP, and
- d) auditing raw data, Software Design Data, software and Source Code for the purpose of validating the Contractor’s performance under the Contract.
Note that these and the other purposes listed in clause 10.7.2 are expressed not to “limit the generality of clause 10.7.1.”
Flow-down
Clause 10.7.3 requires the Contractor to ensure that it flows-down these audit and access rights to Approved Subcontractors.
Contractor and subcontractor requirements
Clause 10.7.4 requires the Commonwealth to comply with, and to require any person authorised by the Commonwealth Representative to comply with, any reasonable Contractor or Subcontractor safety and security requirements or codes of behaviour for the relevant premises.
Proposed prices or costs in CCPs
We note above that clause 10.7.2 of ASDEFCON (Strategic Materiel) lists one of the purposes for which the Commonwealth may request access to Contractor premises as “investigating the reasonableness of proposed prices or costs in any CCP” (Contract Change Proposal). This is in effect a costs investigation clause.
Contractors should note that under this clause, access extends to the records of Related Bodies Corporate of the Contractor. “Related Bodies Corporate” includes subsidiaries and parents. The latter may be of particular concern as it allows the Commonwealth to have access to, for example, the records of an overseas parent of an Australian subsidiary.
Records to which the Commonwealth may have access under this clause include records relating to:
- transfer pricing
- cross-subsidisation with related bodies corporate, and
- the allocation of overheads between the Contractor and its Related Bodies Corporate,
to the extent such records relate to the CCP.
Contractors should carefully consider the level of exposure it is prepared to extend to the Commonwealth, especially where overseas parents are concerned.
Defence Policy and Procurement Manual
In relation to audit and access, the Defence Policy and Procurement Manual states that the Commonwealth “model” ANAO access clauses may be included in agreements on a case-by-case basis.
DMO’s usual practice in this area, however, is to include its standard audit and access clauses (discussed above), on the basis that it would permit the Commonwealth Representative to arrange for appropriate ANAO access.
Conclusions and recommendations
ASDEFCON templates
The standard ASDEFCON audit and access clauses go beyond what the Auditor-General’s own legislation permits or requires, and are broader in scope than the Finance model clauses.
Accordingly it may be in a Contractor’s interests to negotiate specific drafting relating to ANAO audit and access, based more closely on the Finance model clauses.
ANAO specific clauses
Where the Commonwealth has proposed ANAO-specific clauses, the suggested drafting should be tested against the “model” ANAO clauses published by the Department of Finance and Deregulation, and evaluated against the comments above.
Specific advice
This Defence Client Publication can only provide general guidance. What may be appropriate in the circumstances of a particular negotiation will likely vary, not least because relevant clauses will often vary from the template “standard”. Of course we would be very happy to provide advice on specific questions or contractual provisions on request.